Debt consolidation: Pros and cons that you should be aware of

If you are struggling to repay your credit card bills, medical bills, or monthly bills, then you should apply the right debt relief strategy. Ignoring debt can create more financial trouble in the future.
You can seek many debt solutions to get out of unsecured debts. But, when you are struggling with multiple debts or bills, you can consider debt consolidation process.
In this process, you can either combine all your outstanding balance under a single card or obtain a loan at a lower rate of interest to pay off all your unsecured debts. You can also enroll with a debt consolidation company to consolidate your debt. Once you enroll in the program, the debt counselor will negotiate with your creditors to lower the interest rate on your debts. They will club all your outstanding debt obligations into a single low monthly payment plan. You just need to make one single monthly payment for a certain time to become debt free.

What are the benefits of considering debt consolidation process?

Some advantages of debt consolidation process are as follows:

You need to pay a single monthly payment

If you opt for debt consolidation process, you would not have to bother about making multiple monthly payments to your creditors. Just by making a single payment every month, you can pay off all your debts after a certain time. You do not have to pay any extra fees. Only you will have to pay the consolidation services fees if you enroll with a debt relief company to opt for the consolidation service.

It helps to lower the interest rates on debts

You can reduce the interest rate on your debts through debt consolidation. By putting all debts under one card, you will be able to get a lower rate of interest.
In case you are taking out a consolidation loan to pay off your credit card debts, then you will surely get the loan at a lower interest rate.
If you are getting help from a debt consolidation company, the company will negotiate lower rates of interest with your creditors. Thus, you need to pay a much smaller amount than what you were supposed to pay.

You need to pay to a single creditor

When you consolidate your debts, you just need to pay only a single creditor.
If you take out a debt consolidation loan, you will have to pay only the bank or the lender who has provided you that loan. Thus, you do not have to take the trouble of paying multiple creditors.

If you get help from a debt consolidation company, then they will assess your financial situation and decide on a single monthly payment. You need to pay this amount to the company and they further distribute this money among your creditors. Thus, you do not have to pay multiple creditors.

You will get a lower monthly payment

If you consider a debt consolidation program, the debt counselor will negotiate with your creditors to lower down the rate of interest on the debts that you owe. This, in turn, lowers down your single monthly payment amount. It is easy for you to pay a lower single monthly payment plan.

You will get back your peace of mind

When you have too many credit card bills to pay, you will get several credit card bills in the mail. This can turn into a very stressful experience for you. When you consolidate your credit card debts, you will get only a single credit card statement. Thus, you can feel relaxed, which is very important for you to plan your finances better and live a good life.

You can avoid bankruptcy

Ignoring debt can create more trouble. You will start getting debt collection calls. If you don’t respond, then the creditors or debt collectors can sue you for the due payments. You may have to file bankruptcy to pay off the debt collectors. In bankruptcy, you may lose your assets. So, considering debt consolidation can help you to avoid bankruptcy.

Raises your credit score

Debt consolidation program does not hurt your credit score. Since you are paying off all the debts, it will not hurt your credit score. Rather, if you make regular monthly payments, your credit score gets a boost.

Disadvantages of debt consolidation process

Nothing is flawless, debt consolidation has some flaws as well.

Here you go:

  • In debt consolidation process, you can’t reduce the amount of debt. You can reduce the interest rate on your debts, but you have to pay the total debt.
  • The debt consolidation process can be expensive in the long run. If you take out a consolidation loan to pay off your debts, then you have to make monthly payments on the new loan (Consolidation loan). It takes a longer time to pay off the new loan. So, you end up paying more on the interest rate.
  • If your credit score is not good, then you won’t get better rates on your new loan (Consolidation loan). You will be charged a high advance fee. If your credit score is not good, then you can get help from a debt consolidation company to consolidate your debt.

Lastly, you shouldn’t miss the debt payments for your new consolidation loan. So, make sure you follow a budget to make monthly debt payments on time.
If you decide to enroll in a debt consolidation program, then make sure the company is good. Check the rating with BBB before signing the agreement. A good debt consolidation company provides free debt counseling. So, you can be benefited by the debt counseling session. The counselor will help you to learn better money management and budgeting skills.